Virginia Lang - HERLIFE Magazine

eal estateTax Benefitsof HomeOwnershipBy Lisa All enLike anything else in life, the decision to own propertyis a very personal decision. Most people, at one pointor another, will fall prey to the ‘the grass is greeneron the other side’ train of thought when their plans do not goquite as well as they’d anticipated, and might wish they had alandlord to call when the water heater suddenly decides to stopworking. Regardless of the emotional and practical aspects ofowning a home, there are some very real benefits, particularlywhen it comes to taxes.The tax benefits of home ownership fall into both shorttermand long-term categories, allowing a homeowner to notonly benefit during the honeymoon phase of home ownership,but also as their investment matures and their financialportfolio evolves.Short-term perks can begin as soon as the mortgagepapers are signed at closing, if a homeowner pays points toobtain financing. Points, or pre-paid interest, can be deductedfrom taxable income the same year you obtain a mortgage. Inaddition, in 2011, homeowners can take advantage of the HomeImprovement Tax Credit, which allows a homeowner to claimIt is important to rememberto carefully scrutinizenot only your status asa homeowner, but yourentire financial picture whenevaluating your decisions.expenses related to the purchase of energy efficient doors andwindows, water heaters, HVAC components, biomass stoves andother essentials. Because the amounts allowed and the requirementschange from year to year, be sure to check with yourtax professional to verify that your purchases are eligible. Fora quick check, you can visit http://www.energystar.gov/index.cfm?c=tax_credits.tx_index#chart.Long-term benefits include the perk of tax-free capitalgains. As a reminder, capital gains taxes are taxes charged onthe profit realized on the sale of a non-inventoried asset thatwas purchased at a lesser price (example: if you purchase ahome for $50,000 and sell it ten years later for $100,000, thecapital gains tax would be applicable to the $50,000 profit).Most commonly, capital gains result from the sale of investmentslike stocks, bonds and property.Under current tax law, using a rule called the PrimaryResidence Rule, allows a homeowner to sell a primary residencewithout paying capital gains taxes on the first $250,000 inprofits ($500,000 for married couples filing jointly). A primaryresidence is defined as a place where you have lived at leasttwo years out of the last five; the rule does not state that ahomeowner must live there consecutively, but a total of twoyears out of the last five.Another long-term tax benefit of home ownership is thatmortgage interest is 100 percent federal tax deductible on thefirst $1,000,000 of a home mortgage. For a homeowner witha home worth less than $1,000,000, this means that all of themortgage interest on a home is deductible. Taking into accountthat this is an ongoing benefit, it provides a nice deduction eachand every year when tax time arrives. Additionally, 100 percentof property tax payments for homes are also tax deductible.Because the exact property tax rate varies depending onlocation, the national average property tax is 1.5 percent of theproperty value every year.As you get a little more comfortable in your home, you36 HERLIFEmagazine.com